TABLE OF CONTENTS INTRODUCTION………………………………………………………………………………………………. 3 CHAPTER 1: THEORETICAL FOUNDATION 4 Trade definition and the role, purpose of trade 4 Trade definition 4 1. Role and purpose of trade 5 I. Free trade agreement and analysis on aspects of free trade agreement 6 Free trade agreement 7 1. Legal aspect of Free Trade Agreement 7 2. Economic aspects of Free Trade Agreement 8 CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES 9 I. Local and global trend of FTA 9 1. Formation and development 9 2. The current global trend of FTA 10 3. Participation of Vietnam in FTAs 11 II, Vietnam Korea Free Trade Agreement 11 1. . Overview of the Vietnam Korea Free Trade Agreement (VKFTA) 11 2. Vietnams opportunity when signing the Vietnam Korea Free Trade Agreement (VKFTA) 13 3, The challenges for Vietnam when signing the VietnamKorea Free Trade Agreement (VKFTA) 19 a, The increases of trade deficit 19 b, The institutions and legal system 20 c, Technology and quality of human resources 21 4, The solutions for Vietnam when implementing the VietnamKorea Free Trade Agreement (VKFTA) 21 CONCLUSION 23 REFERENCES 24 2 INTRODUCTION The Korea Vietnam relation is established as the official diplomatic relation between the Socialist Republic of Vietnam and the Republic of Korea. The two countries are different in terms of geography, political institutions and ideology but there are many similarities in humanity, history and culture. The relationship between Vietnam and South Korea is a new type called old enemies and new friends and close the past. The date of establishing Vietnams diplomatic relation with South Korea is December 22, 1992 it has also started to a strategic partnership since 2009. Trade between the two nations is expanding rapidly, affecting both sides economic and social growth in a variety of ways. The two countries are on a path of stable and sustainable development, with numerous good signs over the years. The potentials and strengths of the two countries have been promoted wisely and efficiently in the past, resulting in several favorable outcomes.However, in addition to the positive aspects listed above, there are several problems and significant roadblocks in the way of the growth of commercial relations between the two countries. As a result, the group decided to go more into the subject, highlighting the issues that Vietnam has faced in recent years in terms of political economy. Then, in todays challenging economic and political situation, draw lessons from experience and development potential for Vietnam. The essay is divided into two sections: Theoretical foundation Free Trade Agreement between Vietnam and Korea (VKFTA) In this report, we want to send our deep thank to Mrs Nguyen Binh Duong for her considerate instruction in the course. Due to the nature of the work and the time constraints, the report cannot avoid many shortcomings. We look forward to receiving your comments and feedback to draw more experiences and lessons for research projects in the future. 3 CHAPTER 1: THEORETICAL FOUNDATION I.Trade definition and the role, purpose of trade 1.Trade definition Trade or exchange are terms that refers to the direct or indirect exchange of goods between individuals or groups of people through items like money. Trade benefits include increased consumption capacity and increased labor productivity through specialization. People are obliged to use their own resources to meet all needs if trading does not exist. Everyone can engage in the mutually advantageous division of labor under the voluntary trading system. A market is a method for commerce to function, a location where ownership of a product, service, or money is exchanged in order to meet the demands of both supply and demand for a certain type of product using best practices. Market allows a precise determination of the required quantity as well as the cost of the product or service. Trade exists for many reasons. Its underlying cause is specialization and division of labor, in which certain groups of people focus solely on production to provide goods or services of a particular sector for production purposes. in exchange for goods or services of other groups of people. Trade also exists between regions because regional differences confer an absolute or comparative advantage in the production of commercially available goods or services, or because differences in size area (e.g. population) allows for an advantage in mass production. Thus, trading at market prices benefits both regions. 4 Export turnover is the total export value (the amount received) of all the exports of a country (or a business) during a given period (usually a quarter or a year), then synchronously converted to a certain type of monetary organization. . The higher the export turnover, the better the financial economy of the enterprise or the country is developing. In contrast, with low export turnover and high import turnover, the countrys financial economy is old, slow to innovate and develop. Import turnover, similar to exports, are the total value of goods or services imported into a business or country over a fixed period of time and denominated in a common currency. 2. Role and purpose of trade Trade helps to regulate production because in a commodity production, all products are exchanged on the market: Trade encourages production and development by bringing together disparate economic sectors and businesses. Consumer requirements are met. Trade ensures that businesses production and business processes run smoothly and continually. The development of trade helps to expand or promote the development of production of goods: Trade has a direct impact on the market position of businesses.. As trade develops, the role of commercial enterprises in regulating and guiding production is increasingly enhanced, and the relationships of commercial enterprises are increasingly expanded. Trading is a professional sector of activity in the circulation of goods that serves as a link between production and consumption. Trading is an important part of a companys business activities. Commercial business encourages the 5 application of scientific and technological discoveries and new technologies to production, increases demand, and assures that both producers and customers receive good, civilized, and modern goods. As a result, encouraging commercial activity is a critical issue for each company. Commerce promotion is one of the actions that contributes to the growth of trade. Trade promotes the process of industrialization modernization. Trade supplies the required means of manufacturing, allowing for a steady flow of production. To consume products on the market and operate as intermediaries to manage supply and demand, goods produced by industries and fields require a trading network. When goods are consumed quickly, the reproduction cycle is shortened and the reproduction rate is shortened. Therefore, trade opens the way to consume products for the manufacturing industry, promotes industrial development, and trade activities contribute to boosting production and accumulating capital for the cause of industrialization and modernization of our country in this period. Trade promotes the distribution of resources. Labor resources are generally plentiful and diversified in large cities, and labor demand is similarly quite high and diverse. These individuals have aided in the selection of vocations and the promotion of commodities circulation in the area. Trade is not only a link between production and consumption, but also an intermediary for distributing financial resources, circulating items on the market, and assisting in the creation and consumption of goods. 1. Free trade agreement and analysis on aspects of free trade agreement 6 1. Free trade agreement A trade agreement (trade pact) is an extensive tax, tariff and trade agreement or arrangement that usually includes an investment guarantee. It exists when two or more countries agree on terms that help them transact to each other. The most common trade agreements are the types of free and preferential trade that are concluded to reduce or eliminate tariffs, quotas, and other trade restrictions on goods traded between the parties. A free trade agreement (FTA) is a trade agreement between two or more countries. Accordingly, countries will follow the roadmap of reducing and eliminating tariff and nontariff barriers to move towards the establishment of a free trade area. According to statistics of the World Trade Organization (WTO), there are more than 200 free trade agreements in force. Free trade agreements can be made between two individual countries or can be reached between a trading bloc and a country such as the EUChile Free Trade Agreement, or the EUChilean Free Trade Agreement, ASEAN China free trade. What important is the distinction between customs unions and free trade areas. Both types of trade blocs involve internal agreements that parties sign to liberalize and facilitate trade between them. The fundamental difference between customs unions and free trade areas is their approach to third parties. While a customs union requires all parties to establish and maintain the same external tariffs in relation to trade with nonparties, free trade area participants are not comply with that request. Instead, they may establish and maintain any tariff regime applicable to imports from nonParties as deemed necessary 2. Legal aspect of Free Trade Agreement 7 The World Trade Organization (WTO) considers the construction of a free trade area to be a mostfavourednation (MFN) exception because of the benefits that the parties to the free trade area receive from each others exclusivity beyond their commitment to join. Although Article XXIV of the GATT authorizes WTO members to establish free trade zones or to adopt interim agreements that are necessary for such zones to be established, such zones must meet specific criteria. Temporary agreements that lead to the development of free trade zones are known as free trade zones. Free trade agreements that form free trade areas are generally outside the scope of the multilateral trading system. However, WTO members must notify the Secretariat when they conclude new free trade agreements and, in principle, the text of free trade agreements must be approved and reviewed by the Committee on Trade Agreements. 3. Economic aspects of Free Trade Agreement A free trade area will shift commerce from more efficient suppliers outside the territory to less efficient suppliers within the zone, which is known as trade diversion. In this event, the countrys net interests will be jeopardized. Meanwhile, trade creation suggests that there may never have been a free trade area that creates commerce. The development of commerce will benefit a countrys national welfare. Both trade creation and trade diversion are important effects found in the establishment of a free trade area. The creation of trade will cause consumption to shift from highcost producers to lowcost producers, and trade will therefore expand. Conversely, trade diversion will lead to a shift of trade from a lowercost producer outside the region to a highercost producer within the region. Such a 8 change would not benefit consumers in the free trade area as they would be deprived of the opportunity to buy cheaper imported goods. However, economists find that trade diversion does not always harm gross national welfare, it can even improve gross national welfare if the volume of trade diverted is small. CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES I. Local and global trend of FTA 1.Formation and development Formation The signing of the first Regional Trade Agreements (RTAs) took place in the early 1990s. The trend developed rapidly during the following decade, reaching a peak of about 430 in 2006. In 1st January 1995, 123 member countries of GATT singed the Marrakesh Agreement in Morocco marking the founding of WTO – the former of which was GATT founded in 1947. However, the continually increasing number of FTAs violated the MFN rules by WTO, which seems ironic as WTO is itself already a global organization including more than half the world’s countries that acts to stimulate free multinational trade and solve disputes in international trade. FTAs have the same function, but have a much smaller number of members than WTO does. FTAs exist as a regional, bilateral or multilateral free trade areas inside a larger global free trade area which is WTO. Development The number of Free Trade Agreements has risen significantly for the last decade. From 1984 to 1994, the General Agreement on Tariffs and Trade (GATT), the former organization of WTO, received 124 inform letters. Since 1995 over 300 FTAs have come to action. According to Asian Development Bank (ADB), the number of Free Trade Agreements signed among Asian countries had increased from 3 in 2000 to 56 at 9 the end of August 2009, 19 of which were singed among 16 Asian economies. This trend may help the region become a giant trade area. 2. The current global trend of FTA Nowadays, the growth of bilateral regional Free Trade Agreements, especially “new generation” FTAs becomes an essential trend in international economic relationship in the beginning of 21st century. These “newgen” bring enormous chances and opportunities but considerable challenges as well. How are these FTAs different from traditional FTAs? Traditional FTAs Traditional Free Trade Agreements usually consist of market liberalizing commits in the field of goods trading with the most important one is the removal of up to 80% of tariffs. A few include the field of services and mutual rules in investment, intellectual property, competition, etc. However, these commits are often general and lacks particular points. All the FTAs Vietnam singed before 2014, including 6 ASEANwide, 2 bilateral with Japan (VJEPA) and Chile (VCFTA) are traditional ones, with the main contents of eliminating tariffs among the members. New FTAs Newgen Free Trade Agreements consist of commits in a wide variety of fields: goods, services, investment, intellectual property, labor, etc. at a higher rate (up to 90% decrease or even free of tariffs) and with high standard of rules. With the slogan “highquality FTA”, it is certain that the openness of Vietnam and its partners is enormous even when the FTA is still under negotiation, and it is surely higher than WTO and other previous FTAs (except ATIGA). From the above, we can see the differences and enhancements of newgen FTAs when compared with traditional FTAs:
FOREIN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS ──────── ──────── INTERNATIONAL ECONOMICS MIDTERM REPORT TOPIC: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES TABLE OF CONTENTS INTRODUCTION………………………………………………………………… …………………………… CHAPTER 1: THEORETICAL FOUNDATION Trade definition and the role, purpose of trade .4 Trade definition Role and purpose of trade I Free trade agreement and analysis on aspects of free trade agreement Free trade agreement Legal aspect of Free Trade Agreement Economic aspects of Free Trade Agreement CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES .9 I Local and global trend of FTA .9 Formation and development The current global trend of FTA 10 Participation of Vietnam in FTAs 11 II, Vietnam - Korea Free Trade Agreement 11 Overview of the Vietnam - Korea Free Trade Agreement (VKFTA) 11 Vietnam's opportunity when signing the Vietnam - Korea Free Trade Agreement (VKFTA) 13 3, The challenges for Vietnam when signing the Vietnam-Korea Free Trade Agreement (VKFTA) 19 a, The increases of trade deficit 19 b, The institutions and legal system 20 c, Technology and quality of human resources 21 4, The solutions for Vietnam when implementing the Vietnam-Korea Free Trade Agreement (VKFTA) 21 CONCLUSION 23 REFERENCES .24 INTRODUCTION The Korea - Vietnam relation is established as the official diplomatic relation between the Socialist Republic of Vietnam and the Republic of Korea The two countries are different in terms of geography, political institutions and ideology but there are many similarities in humanity, history and culture The relationship between Vietnam and South Korea is a new type called "old enemies and new friends" and "close the past" The date of establishing Vietnam's diplomatic relation with South Korea is December 22, 1992 it has also started to a "strategic partnership" since 2009 Trade between the two nations is expanding rapidly, affecting both sides' economic and social growth in a variety of ways The two countries are on a path of stable and sustainable development, with numerous good signs over the years The potentials and strengths of the two countries have been promoted wisely and efficiently in the past, resulting in several favorable outcomes.However, in addition to the positive aspects listed above, there are several problems and significant roadblocks in the way of the growth of commercial relations between the two countries As a result, the group decided to go more into the subject, highlighting the issues that Vietnam has faced in recent years in terms of political economy Then, in today's challenging economic and political situation, draw lessons from experience and development potential for Vietnam The essay is divided into two sections: - Theoretical foundation - Free Trade Agreement between Vietnam and Korea (VKFTA) In this report, we want to send our deep thank to Mrs Nguyen Binh Duong for her considerate instruction in the course Due to the nature of the work and the time constraints, the report cannot avoid many shortcomings We look forward to receiving your comments and feedback to draw more experiences and lessons for research projects in the future CHAPTER 1: THEORETICAL FOUNDATION I Trade definition and the role, purpose of trade Trade definition Trade or exchange are terms that refers to the direct or indirect exchange of goods between individuals or groups of people through items like money Trade benefits include increased consumption capacity and increased labor productivity through specialization People are obliged to use their own resources to meet all needs if trading does not exist Everyone can engage in the mutually advantageous division of labor under the voluntary trading system A market is a method for commerce to function, a location where ownership of a product, service, or money is exchanged in order to meet the demands of both supply and demand for a certain type of product using best practices Market allows a precise determination of the required quantity as well as the cost of the product or service Trade exists for many reasons Its underlying cause is specialization and division of labor, in which certain groups of people focus solely on production to provide goods or services of a particular sector for production purposes in exchange for goods or services of other groups of people Trade also exists between regions because regional differences confer an absolute or comparative advantage in the production of commercially available goods or services, or because differences in size area (e.g population) allows for an advantage in mass production Thus, trading at market prices benefits both regions Export turnover is the total export value (the amount received) of all the exports of a country (or a business) during a given period (usually a quarter or a year), then synchronously converted to a certain type of monetary organization The higher the export turnover, the better the financial economy of the enterprise or the country is developing In contrast, with low export turnover and high import turnover, the country's financial economy is old, slow to innovate and develop Import turnover, similar to exports, are the total value of goods or services imported into a business or country over a fixed period of time and denominated in a common currency Role and purpose of trade Trade helps to regulate production because in a commodity production, all products are exchanged on the market: Trade encourages production and development by bringing together disparate economic sectors and businesses Consumer requirements are met Trade ensures that businesses' production and business processes run smoothly and continually The development of trade helps to expand or promote the development of production of goods: Trade has a direct impact on the market position of businesses As trade develops, the role of commercial enterprises in regulating and guiding production is increasingly enhanced, and the relationships of commercial enterprises are increasingly expanded Trading is a professional sector of activity in the circulation of goods that serves as a link between production and consumption Trading is an important part of a company's business activities Commercial business encourages the application of scientific and technological discoveries and new technologies to production, increases demand, and assures that both producers and customers receive good, civilized, and modern goods As a result, encouraging commercial activity is a critical issue for each company Commerce promotion is one of the actions that contributes to the growth of trade Trade promotes the process of industrialization - modernization Trade supplies the required means of manufacturing, allowing for a steady flow of production To consume products on the market and operate as intermediaries to manage supply and demand, goods produced by industries and fields require a trading network When goods are consumed quickly, the reproduction cycle is shortened and the reproduction rate is shortened Therefore, trade opens the way to consume products for the manufacturing industry, promotes industrial development, and trade activities contribute to boosting production and accumulating capital for the cause of industrialization and modernization of our country in this period Trade promotes the distribution of resources Labor resources are generally plentiful and diversified in large cities, and labor demand is similarly quite high and diverse These individuals have aided in the selection of vocations and the promotion of commodities circulation in the area Trade is not only a link between production and consumption, but also an intermediary for distributing financial resources, circulating items on the market, and assisting in the creation and consumption of goods Free trade agreement and analysis on aspects of free trade agreement Free trade agreement A trade agreement (trade pact) is an extensive tax, tariff and trade agreement or arrangement that usually includes an investment guarantee It exists when two or more countries agree on terms that help them transact to each other The most common trade agreements are the types of free and preferential trade that are concluded to reduce or eliminate tariffs, quotas, and other trade restrictions on goods traded between the parties A free trade agreement (FTA) is a trade agreement between two or more countries Accordingly, countries will follow the roadmap of reducing and eliminating tariff and non-tariff barriers to move towards the establishment of a free trade area According to statistics of the World Trade Organization (WTO), there are more than 200 free trade agreements in force Free trade agreements can be made between two individual countries or can be reached between a trading bloc and a country such as the EU-Chile Free Trade Agreement, or the EU-Chilean Free Trade Agreement, ASEAN - China free trade What important is the distinction between customs unions and free trade areas Both types of trade blocs involve internal agreements that parties sign to liberalize and facilitate trade between them The fundamental difference between customs unions and free trade areas is their approach to third parties While a customs union requires all parties to establish and maintain the same external tariffs in relation to trade with nonparties, free trade area participants are not comply with that request Instead, they may establish and maintain any tariff regime applicable to imports from non-Parties as deemed necessary Legal aspect of Free Trade Agreement The World Trade Organization (WTO) considers the construction of a free trade area to be a most-favoured-nation (MFN) exception because of the benefits that the parties to the free trade area receive from each other's exclusivity beyond their commitment to join Although Article XXIV of the GATT authorizes WTO members to establish free trade zones or to adopt interim agreements that are necessary for such zones to be established, such zones must meet specific criteria Temporary agreements that lead to the development of free trade zones are known as free trade zones Free trade agreements that form free trade areas are generally outside the scope of the multilateral trading system However, WTO members must notify the Secretariat when they conclude new free trade agreements and, in principle, the text of free trade agreements must be approved and reviewed by the Committee on Trade Agreements Economic aspects of Free Trade Agreement A free trade area will shift commerce from more efficient suppliers outside the territory to less efficient suppliers within the zone, which is known as trade diversion In this event, the country's net interests will be jeopardized Meanwhile, trade creation suggests that there may never have been a free trade area that creates commerce The development of commerce will benefit a country's national welfare Both trade creation and trade diversion are important effects found in the establishment of a free trade area The creation of trade will cause consumption to shift from high-cost producers to low-cost producers, and trade will therefore expand Conversely, trade diversion will lead to a shift of trade from a lower-cost producer outside the region to a higher-cost producer within the region Such a change would not benefit consumers in the free trade area as they would be deprived of the opportunity to buy cheaper imported goods However, economists find that trade diversion does not always harm gross national welfare, it can even improve gross national welfare if the volume of trade diverted is small CHAPTER 2: VIETNAM – KOREA FREE TRADE AGREEMENT (VKFTA): OPPORTUNITIES AND CHALLENGES I Local and global trend of FTA Formation and development * Formation The signing of the first Regional Trade Agreements (RTAs) took place in the early 1990s The trend developed rapidly during the following decade, reaching a peak of about 430 in 2006 In 1st January 1995, 123 member countries of GATT singed the Marrakesh Agreement in Morocco marking the founding of WTO – the former of which was GATT founded in 1947 However, the continually increasing number of FTAs violated the MFN rules by WTO, which seems ironic as WTO is itself already a global organization including more than half the world’s countries that acts to stimulate free multinational trade and solve disputes in international trade FTAs have the same function, but have a much smaller number of members than WTO does FTAs exist as a regional, bilateral or multilateral free trade areas inside a larger global free trade area which is WTO * Development The number of Free Trade Agreements has risen significantly for the last decade From 1984 to 1994, the General Agreement on Tariffs and Trade (GATT), the former organization of WTO, received 124 inform letters Since 1995 over 300 FTAs have come to action According to Asian Development Bank (ADB), the number of Free Trade Agreements signed among Asian countries had increased from in 2000 to 56 at the end of August 2009, 19 of which were singed among 16 Asian economies This trend may help the region become a giant trade area The current global trend of FTA Nowadays, the growth of bilateral regional Free Trade Agreements, especially “new generation” FTAs becomes an essential trend in international economic relationship in the beginning of 21st century These “new-gen” bring enormous chances and opportunities but considerable challenges as well How are these FTAs different from traditional FTAs? * Traditional FTAs Traditional Free Trade Agreements usually consist of market liberalizing commits in the field of goods trading with the most important one is the removal of up to 80% of tariffs A few include the field of services and mutual rules in investment, intellectual property, competition, etc However, these commits are often general and lacks particular points All the FTAs Vietnam singed before 2014, including ASEAN-wide, bilateral with Japan (VJEPA) and Chile (VCFTA) are traditional ones, with the main contents of eliminating tariffs among the members * New FTAs New-gen Free Trade Agreements consist of commits in a wide variety of fields: goods, services, investment, intellectual property, labor, etc at a higher rate (up to 90% decrease or even free of tariffs) and with high standard of rules With the slogan “high-quality FTA”, it is certain that the openness of Vietnam and its partners is enormous even when the FTA is still under negotiation, and it is surely higher than WTO and other previous FTAs (except ATIGA) From the above, we can see the differences and enhancements of new-gen FTAs when compared with traditional FTAs: 10 + Wide range of commitment: While previous Free Trade Agreements mainly focus on goods, exchange, new FTAs include a lot of new fields: governmental purchase, labor, environment, etc + More commits on institutions: Unlike traditional ones that often affect tariff policies in region close to the border, new-gen FTAs have a direct effect on domestic policies + Extremely large partners: Among the FTAs Vietnam is currently negotiate, there are trade partners such as the USA, EU, Japan Vietnam is operating new-gen FTAs, including bilateral FTA with Korea (VKFTA) and the Eurasian Economic Union (EAEU) However, the “new generation” aspect of these FTAs is mentioned limitedly only, mostly directional but not detailed contents Vietnam is currently negotiating new FTAS that are CPTPP and EVFTA Participation of Vietnam in FTAs In time of economic globalization and increasing trade liberalization, the number of new-generation Free Trade Agreements is rapidly rising all over the world, becoming a new trend in international economic relations that no country can ignore Clearly realizing this, Vietnam has been actively negotiating and signing bilateral and multilateral FTAs Until now, Vietnam is officially joining 14 operating FTAs, FTA waiting to come to action and are under negotiation In the 14 operating Free Trade Agreements include the first newgen FTA Vietnam takes part in, and EVFTA II, Vietnam - Korea Free Trade Agreement Overview of the Vietnam - Korea Free Trade Agreement (VKFTA) The Vietnam - Korea Free Trade Agreement (VKFTA) was signed on May 5, 2015 in Vietnam The Government of the Socialist Republic of Vietnam has approved the implementation of the VKFTA Agreement in Resolution No 60/NQ-CP dated August 20, 2015 and took effect from December 20, 2015 In 11 order to fulfill Vietnam's commitments on import tax in the VKFTA, the Ministry of Finance has issued Circular No 201/2015/TT-BTC dated December 16, 2015 of the Minister of Finance promulgating the Import Tariff Schedule Vietnam's special preferential import export to implement the VKFTA Agreement 2015-2018, effective from December 20, 2015 VKFTA is the first Free Trade Agreement (FTA) among the bilateral FTAs between Vietnam and economic partners VKFTA is a comprehensive agreement with a high level of commitment and ensures a balance of benefits for both sides The agreement will eliminate more than 90% of import tax lines for export and import goods between the two countries The business fields that are entitled to Korea's incentives are automobiles, electronic goods, and textiles; Products eligible for incentives include plastics, iron and steel, electric cables, electrical appliances, and vehicles of 3,000 cubic centimeters or more Vietnamese products eligible for preferential treatment include tropical fruits, garlic, ginger, pork, honey and sweet potato starch The agreement also sets out regulations governing customs procedures, intellectual property standards, food safety and hygiene, and rules of origin E-commerce and regulatory barriers are also removed 12 Table Import tax on garlic and honey to Vietnam was immediately reduced to 0% as soon as VKFTA took effect Source: “VKFTA - Preferential Tariff of Vietnam 2016 - 2018 - Vietnamese” - Ministry of Finance Vietnam's opportunity when signing the Vietnam - Korea Free Trade Agreement (VKFTA) First: expanding markets, increasing export turnover Korea has been Vietnam's third largest trading partner and largest direct investment partner in the 23 years since the two countries established diplomatic relations Korea is also in the group of countries with the largest number of tourists to Vietnam This is also one of the largest partners providing ODA to Vietnam (about 21 billion USD) The agreement aims to double the total two-way trade turnover between the two countries to 70 billion USD by 2020, which means an average growth of about 20% per year 13 Specifically, after years of implementing VKFTA, two-way trade between Vietnam and Korea has grown strongly: - 2016: Bilateral trade turnover between Vietnam and Korea in 2016 reached more than 45.1 billion USD; 20% increase compared to 2015 - Period 2016 - 2018: average growth of 26.9%/year compared to 24.3%/year of the period (2010 - 2015) - In 2018, the total bilateral trade turnover between Vietnam and the Republic of Korea reached more than 65.8 billion USD, of which the export of Vietnamese goods to Korea reached 18.24 billion USD; Vietnam imports $47.6 billion from South Korea TOP IMPORT DESTINATIONS FROM KOREA Unit: US$1000,% 2019 Rank Country Value 2020 Inc Rate Value Inc Rate Total 542,232,610 -10.4 512,498,038 -5.5 Pr.China 136,202,533 -16 132,565,445 -2.7 U.S.A 73,343,898 0.9 74,115,819 1.1 48,177,749 -0.9 48,510,572 0.7 31,912,876 -30.6 30,653,790 -3.9 28,420,213 -6.9 25,097,651 -11.7 Viet Nam Hong Kong Japan 14 TOP EXPORT DESTINATIONS OF KOREA Unit: US$1000,% 2019 Rank Country 2020 Inc Value Rate Inc Value Rate Total 503,342,947 -6 467,632,763 -7.1 Pr.China 107,228,736 0.7 108,884,645 1.5 U.S.A 61,878,564 5.1 57,492,178 -7.1 Japan 47,580,853 -12.9 46,023,036 -3.3 Germany 19,936,937 -4.4 20,680,918 3.7 21,071,557 7.3 20,578,589 -2.3 Viet Nam Table Vietnam is always in the top countries with the largest export and import turnover to Korea in the period 2019-2020 Source: Website of the Korea Foreign Trade Association (KITA): stat.kita.fr South Korea opens its market to highly sensitive products such as garlic, ginger, honey, and shrimp, creating significant competitive opportunities for Vietnam relative to other regional competitors Before the VKFTA, the tax rate for items of garlic and ginger (raw materials for making kimchi dishes) was very high (from 241 to 420%) but after the VKFTA, Korea eliminated tariffs with a roadmap for both sides This item is from Vietnam For shrimp products of Vietnam, Korea applies a 0% import tax rate for export shipments within the quota The good news is that the quota level will be gradually raised by Korea year by year, this preferential policy has turned Korea into the 5th largest shrimp consuming market 15 of Vietnam According to a report by the Vietnam Association of Seafood Exporters and Producers (VASEP), in 2020, Vietnam will become the largest shrimp exporter to Korea According to a report by the Vietnam Association of Seafood Exporters and Producers (VASEP), in 2020, Vietnam will become the largest shrimp exporter to Korea In addition, a number of goods with advantages of Vietnam such as textiles, natural honey, tropical fruits, etc are also being included in the tax reduction roadmap by Korea KOREA'S SUPPLY MARKETS OF SHRIMP 2020 Unit: 1000 USD SUPPLY MARKET 2019 2020 ↑↓% Vietnam 343.077 328.674 -4,2 Thailand 58.502 68.431 17,0 Ecuador 67.379 51.924 -22,9 Malaysia 47.464 37.611 -20,8 Peru 14.784 36.807 149,0 China 27.228 29.234 7,4 Argentina 23.665 21.031 -11,1 India 15.630 14.630 -6,4 Colombia 2.498 4.423 77,1 Saudi Arabia 7.096 2.352 -66,9 Table Korea's shrimp imports in 2020 Source: ITC 16 Second: attracting direct investment capital from foreign countries Korea is currently the leading country in terms of foreign direct investment (FDI) into Vietnam - In the period from 2015 to 2018, Korea continuously topped the list of the largest foreign investors in Vietnam - In 2019, foreign direct investment capital into Vietnam reached 38.02 billion USD; in which, Korea leads with total investment capital of 7.92 billion USD Figure countries and regions with the highest foreign direct investment (FDI) in Vietnam, as of December 31, 2019 Source: Calculation according to the data of the General Statistics Office: gso.gov.vn 17 Figure Distribution of FDI from Korea and size of capital/project by location in Vietnam (as of December 31, 2019) Source: Provincial Statistics Office, Department of Foreign Investment Third: spreading technology and participating in the global distribution chain “According to the World Economic Forum (WEF), Korea is always ranked in the group of countries with the highest innovation index in the world Data from the Korean Ministry of Trade, Industry and Energy (MOTIE) shows that Korea is the main exporter of high-tech products such as: Semiconductors (9%), machinery (9%), umbrellas automobile (9%), ships (7%), petrochemical products (10%), LCD equipment (5%) The fact that large economic groups of Korea such as Samsung Electronic, LG Electronic are investing and doing business effectively in Vietnam will open up opportunities to participate in global distribution chains for Vietnamese businesses If the horizontal and vertical links in the distribution chain are well exploited, Vietnamese enterprises can gradually learn to innovate production processes and technology" (Nguyen Thi Bich Ngoc, 2016; Phan Quan Viet & Co Le Thi Phuong Hoang Yen, 2017) 18 Not only in terms of investment, leading Korean enterprises continue to support Vietnamese enterprises in training human resources and consultants in order to improve their management and quality control skills, thereby improving their products Exporters can become deeply involved in the global supply chain Specifically, the project of cooperation in training Vietnamese consultants with support from Samsung for two years (2018 - 2019) with the goal of training 200 Vietnamese consultants These will be the core experts who will play an important role in the proactive and sustainable operation of the consultant training program in Vietnam in the future Particularly, the amount of FDI from Korea has had a positive impact on the restructuring of Vietnam's economy, helping to create jobs for over 700,000 workers in many localities, playing a large role in the total export value of the country 3, The challenges for Vietnam when signing the Vietnam-Korea Free Trade Agreement (VKFTA) a, The increases of trade deficit According to the VKFTA agreement, Vietnam will commit to cut import tax by about 90%, mainly on industrial products with Korea such as textile raw materials, plastic materials, electronic components, trucks and cars from 3000 cc or more, auto parts, electrical appliances, some iron and steel products and electric cables… These are luxury items with high added value On the other hand, tax-free Vietnamese exports to Korea are mainly unprocessed processed goods and raw goods This could push Vietnam into a prolonged trade deficit 19